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Budget 2015: New road tax VED rates for 2017 onwards

Published 08 July 2015

In a move that surprised many, Chancellor of the Exchequer George Osborne has completely revamped the road tax system. From 2017 nearly all new car buyers will pay £140 a year, while owners of £40,000 vehicles will pay an additional£310 per year. The only exception from the new rules are electric cars that emit zero emissions - they pay zero VED.

Considering that VED has always been based on the CO2 emissions of a car - something which is similar in many other countries across Europe - the move to a flat rate was not expected. It now brings into question the financial advantages of buying a so called 'eco-model' from 2017.

True, the tax in the first year of ownership will be set according to emissions, as it is now. But after that there will be three bands of car tax - zero emissions, standard and premium. Cars with a list price above £40,000 will pay an additional £310 per year - £450 in total - for the first five years in which the standard rate is paid.

The good news for anyone who currently owns a low emissions car is that the charges only apply to new cars from 2017. There will be no change to VED for existing cars so no one will have to pay more tax than they currently do if they keep the same car.

The Government claims that the £140 a year is less than the average £166 that motorists currently pay, although that takes into account many older everyday cars with high emissions. It also says that it won't earn any more tax from the new system than it does with the current CO2 based one.

So is there any good news from these changes? Well if you're buying a car with high emissions the tax will be cheaper. Anything in a Band F or higher will work out cheaper if you bought in new in 2017 as oppose to today. Good news for those buying performance or luxury cars.

But what for the ordinary motorist? Well there is some slight consolation in that VED will now be put toward the use it was originally intended for - paying for roads. So once again we can legitimately refer to it as 'road tax'.

The Chancellor has stated that from the end of this decade, every single penny raised in Vehicle Excise Duty in England will go into a Road Fund to pay for the sustained investment our roads so badly need.

Borrowing £7,500 over 4 years with a representative APR of 25.4%, an annual interest rate of 25.4% (Fixed) and a deposit of £0.00, the amount payable would be £239.77 per month, with a total cost of credit of £4,008.96 and a total amount payable of £11,508.96.